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Comparisons of the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP)

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April 2, 2020

By: Robert A. Greising and Corben A. Lee

[UPDATED APRIL 17, 2020] On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “Act”) which provides significant economic benefits to small businesses. Two of the most economically beneficial programs available to small businesses are the Economic Injury Disaster Loan (“EIDL”) and the expansion of loans under Section 7(a) to provide for the Paycheck Protection Program (“PPP”). Below is a comparison of these two programs.
 

Consideration

Economic Injury Disaster Loan

Paycheck Protection Program

Where do I apply?

Through the SBA at sba.gov/disaster

Through an existing SBA lender.  The application for this program can be found here.

It is recommended to contact your current lender to confirm whether they are participating before reaching out to a new lender.  

How long does the program last?

Until December 31, 2020, but all funds are gone until Congress appropriates additional funding.

Until June 30, 2020 but all funds are gone until Congress appropriates additional funding.

When can an applicant apply?

Now.

Now for small business concerns and sole proprietorships.

April 10th for independent contractors and self-employed individuals.

All other regulated lenders will be available to make the loans as soon as they are approved and enrolled in the program.

Program proceeds will be provided on a "first come/first served" basis.

Who is eligible?

All businesses, cooperatives, nonprofits, ESOPs, sole proprietorships, independent contractors, and tribal business concerns with less than 500 employees.

Same, except veterans organizations are also eligible.

What fees are charged?

Fees are waived.

Fees are waived.

What is the maximum size of the loan?

Up to $2,000,000, although further guidance is expected on the max amount being reduced due to the number of applicants and funds available.

The lesser of (i) $10,000,000 or (ii) 2.5 times the average monthly payroll costs during the prior year, plus the amount taken out for an EIDL between February 15, 2020 and June 30, 2020 if the applicant wants to refinance that amount into the PPP.

Payroll costs are defined as salaries, wages, commissions, cash tips, payments for vacation, parental, family, medical, or sick leave, insurance premiums, retirement benefits, and state or local payroll taxes. Amounts for an employee's cash compensation that are in excess of $100,000 are excluded in the calculation of payroll costs. This exclusion does not apply to non-cash benefits. For information on how self-employment income is treated click here.

What is the maximum term of the loan?

Up to 30 years

2 years after loan forgiveness

What is the maximum interest rate of the loan?

3.75% for businesses; 2.75% for nonprofits

1.0%

Will the loan be forgiven?

No loan forgiveness, but you may request an emergency advance up to $10,000 (at $1,000 per employee up to 10 employees) that is not required to be repaid regardless of whether you qualify for and receive a loan.

Yes. Subject to any reduction discussed in the section below, the loan will be forgiven up to the amount borrowed for any expenses that are used on payroll costs, and, if the following are in place as of February 15, 2020, interest on mortgages, rent, or utilities.

The SBA has provided guidance that not more than 25% of the forgiven amount will be for non-payroll costs.

Can loan forgiveness be reduced?

Not applicable.

Yes. The forgiveness amount is reduced based on a failure to maintain the same number of full-time equivalent employees after you close on the loan versus the period from February 15, 2019 until June 30, 2019 or January 1, 2020 until February 29, 2020. The period chosen is selected by the borrower. The forgiveness amount will also be reduced by the aggregate amount of wage and salary reduction for any employee of 25% or more compared to the previous quarter.

Any reductions in the number of employees or wages and salary that occurred between February 15, 2020 and April 26, 2020 will not be included in the reduction in the forgiveness amount if the reductions are reversed by June 30, 2020.

What can the loan proceeds be used for?

Fixed debts, payroll, accounts payable and other debts that would have been paid but for the disaster occurring.

Payroll costs, healthcare benefits and insurance premiums, mortgage interest, rent, utilities and interest on debt incurred prior to February 15, 2020.

When is the first loan payment due?

One year after the closing of the loan. Interest accrues during the deferment period.

Six months after the closing of the loan. Interest accrues during the deferment period.

Are personal guaranties or collateral required?

For any loans in excess of $200,000 personal guaranties are required.

 

The SBA will also place a UCC lien against the assets of the business.

No.

Do I have to be turned down by other lenders to be eligible under this program?

No.

No. 

 

Krieg DeVault is committed to helping you and your business during these unprecedented times. With your needs in mind, we have established a COVID-19 Resource Center to assist you through this process.

If you have any further questions, comments or concerns, please feel free to contact Robert A. Greising, Corben A. Lee or a member of our Business, Acquisitions & Securities team